A majority of insurance policies require the insured to cooperate with the insurer. The cooperation clause generally states, “the insured agrees to Cooperate with us in the investigation, settlement or defense of the suit.”
The “cooperation clause” is often an afterthought because once litigation has ensued an insured is focused on other important considerations. However, insureds should not forget that complying with the cooperation clause can make the difference between the insurer covering or denying a claim.
The Cooperation Clause in Action
The Court in HDI Glob. Specialty SE v. PF Holdings, LLC,1 highlighted the importance of cooperating with an insurance carrier. In the underlying litigation, residents of an apartment complex sued four entities, all insured by the same insurance policy: two were named insureds and two were additional insureds. The primary insurer provided a defense for the named insureds.
The named insureds provided the insurer notice of the claim in 2019 and the insurer provided them with a defense. However, the insurer did not defend the additional insureds until there was an explicit request for coverage in January of 2020. The additional insureds argued the duty to defend was triggered in 2019 when the insurer was on notice of the claims against all four entities and “must have kn own” that the additional insureds wanted a defense under the policies.
Under Georgia law, if the insurer denies coverage and refuses to defend the insured when it could have done so with a reservation of rights, the insurer waives the provisions in the policy against settlement and is bound to pay any settlement within its policy limits made in good faith. This also includes expenses and attorney’s fees if the claim is actually covered by the policy.
The Court found that the insurer’s actions did not prejudice the additional insureds and were reasonable. The Court noted that, when the additional insureds expressly requested a defense, the insurer investigated the claim and provided a defense about a month later.
However, prior to the coverage litigation and the Court’s decision, the additional insureds believed the insurers had breached their duty to defend because they did not provide a defense immediately upon the named insureds’ notice. As such, the additional insureds participated in binding arbitration with the claimants, believing the insurer forfeited any right to insist that the additional insureds comply with the cooperation clause. However, because the Court found the insurer acted reasonably, the insurer had not forfeited its right to enforce the cooperation clause.
Before arbitration commenced, the insurer made it clear that it did not consent to the arbitration and insisted that defense counsel provided to the additional insureds be allowed to participate. This defense counsel provided suggested questions during the breaks but did not otherwise participate in the arbitration. The arbitrator found for the apartment complex residents, and the additional insureds did not oppose confirmation of the arbitrator’s award.
The insurer argued that the additional insureds breached their duty to cooperate by agreeing to binding arbitration and assuming a legal duty to pay a judgment based on the arbitrator’s award without the insurer’s consent or even the insurer’s input. The Court agreed with the insurer’s finding that neither defense counsel nor the insurer explicitly agreed to binding arbitration. Moreover, the additional insureds indicated they would welcome the appointed defense counsel’s assistance only if the insurer withdrew its reservation of rights, meaning that the additional insureds refused to allow the appointed defense counsel to participate in the arbitration. Lastly, the Court held the insurers were very clear in their opposition of the binding arbitration, even filing a declaratory judgement complaint on the matter.
Ultimately, applying Georgia law, the Court found, in relevant part, that (1) the additional insureds breached the cooperation clause, and (2) the additional insureds’ lack of cooperation prejudiced the insurance carrier . The insurer was forced to accept arbitration, played no active role in it, and could not meaningfully impact the arbitration. The Eleventh Circuit Court of Appeals affirmed the decision.2
Does the “Cooperation Clause” Apply to Me?
Chances are your insurance policy contains a “cooperation clause.” Likewise, most states have legal precedent indicating that when an insured violates the cooperation clause, the insurer may deny the claim.3 The insurer is not required to provide coverage when the clause is violated because the failure to cooperate is a material breach of the insurance contract. So, cooperating with your insurer is likely a must.
For more information, please contact Susana Arce at SArce@sdvlaw.com.
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1HDI Glob. Specialty SE v. PF Holdings, LLC, No. 4:20-CV-103 (CDL), 2022 WL 1572028 (M.D. Ga. May 18, 2022), aff’d, No. 22-12146, 2023 WL 6143351 (11th Cir. Sept. 20, 2023)
2HDI Glob. Specialty SE v. PF Holdings LLC, No. 22-12146, 2023 WL 6143351 (11th Cir. Sept. 20, 2023)
3See Gilbert v. Infinity Ins. Co., 186 F. Supp. 3d 1075, 1085 (E.D. Cal. 2016); Stover v. Aetna Cas. & Sur. Co., 658 F. Supp. 156, 159 (S.D. W. Va. 1987)